13th Sep 2006 07:03
PuriCore Plc13 September 2006 PuriCore plc Interim Results for the Six Months Ended 30 June 2006 MALVERN, PENNSYLVANIA, and STAFFORD, UK, 13 September 2006 -- PuriCore plc("PuriCore" or the "Company") (London Stock Exchange: PURI), the developer of anovel, safe technology that mimics the human body's natural anti-microbial,hypochlorous acid, today announces its inaugural interim results for the sixmonths ended 30 June 2006. The Company successfully listed its shares on theLondon Stock Exchange in June 2006. Financial Highlights • Flotation on London Stock Exchange successfully completed in June 2006, raising $54.5 million ($47.0 million net) • Revenues of $8.4 million, losses of $7.7 million (losses of $6.8 million net of non-cash compensation expense realised in accordance with IAS 2) Operational Highlights • Continued strong growth in the Food Safety business, with 679 installations in H1 (versus 22 in H1 2005) • UK Endoscopy business impacted by NHS budgetary constraints Post IPO Highlights • New $3.3 million contract with major US supermarket chain signed (see separate press release issued today) • Three new independent non-executive director appointments announced (see separate press release issued today) • US FDA 510(k) approvals for the Vashe(TM)system in wound care applications and Aquatine(TM)EC for root canal treatments in dental applications Commenting on the results, Greg Bosch, Chief Executive of PuriCore, said: "Following the Company's successful flotation in June, we are well-positioned toexecute our business plan and achieve our goal of building a global leadershipposition in the field of infection control based on our proprietary technologywhich generates hypochlorous acid. We had a strong first half of 2006 in FoodSafety and are delighted to announce the signing of another major contract inthis segment of the business today. With progress in both our core businesses,as well as our initiatives to take Sterilox Systems into other industry sectors,we look forward to delivering strong future growth for shareholders." FOR FURTHER INFORMATION: PuriCore plc Today: +44 (0) 20 7831 3113Greg Bosch, Chief Executive Officer Thereafter: +1 (484) 321-2701Keith A. Goldan, Chief Financial Officer Financial Dynamics Tel: +44 (0) 20 7831 3113David YatesSarah MacLeodJohn Gilbert ABOUT PURICORE PLC PuriCore is a life sciences company focused on the development andcommercialisation of its proprietary technology that mimics the production bythe human body of its natural anti-microbial, hypochlorous acid. Hypochlorousacid is highly effective at killing pathogens such as bacteria, viruses andfungi and yet is safe and environmentally friendly. PuriCore's solutions haveapplications in a wide range of markets where it is important to controlmicrobial contamination. These markets include medical device disinfection,food safety, dental equipment decontamination, environmental remediation,hospitality, water safety, wound management and other applications intended tolimit the spread of infectious disease, including major global disease threatssuch as Tuberculosis, MRSA, Influenza, E.coli, Norovirus, HIV, polio, HepatitisA, H.pylori and Legionella. PuriCore markets a portfolio of branded systems which produce hypochlorous acidsolutions on-site at a customer's location from water, electricity and commonsalt. These solutions are generated at a range of concentrations and at anearly neutral pH range similar to the human body. They are effective as soaks,sprays, mists and in other forms. PuriCore is headquartered in Malvern, Pennsylvania and has offices in Stafford,UK. To receive additional information on the Company, please visit our web site atwww.puricore.com, which does not form part of this press release. Chairman and Chief Executive's Statement We are pleased to present our first interim report as a public company,following an exciting first half of the year which culminated in PuriCore'ssuccessful flotation on the London Stock Exchange on 27 June 2006. To ourpre-IPO investors, we want to thank you once again for your support and beliefin our vision and technology over the past years. To our new investors, wewelcome you to PuriCore and thank you for your support as we begin the nextstage of development for our Company. Our goal is to build a global leadership position in the field of infectioncontrol based on our innovative hypochlorous acid-producing technology. We areachieving this as a direct result of meeting customer expectations andaddressing their need for new alternatives to existing technologies andprocesses. Our flotation has strengthened our balance sheet, enabling us toexecute on our business plan in building the franchises, team, and processes toestablish PuriCore as a leader in our industry. PuriCore's proprietary technology is marketed under the branded portfolio ofSterilox Systems which produce hypochlorous acid (HOCl) solutions from onlywater, salt and electricity. These solutions are safe and non-toxic yet highlyeffective at killing a wide range of infectious pathogens. We were very proudthat our Sterilox technology was recognised by Frost & Sullivan, a leadinghealthcare market research firm, as their Technology Innovation recipient inlate 2005. More important is the recognition by our customers across a widerange of industries of the value that our science provides to them. Our focus has been primarily in the disinfection of heat sensitive medicaldevices, specifically endoscopes, and in food safety through the removal ofpathogens to extend shelf life of fresh produce and floral products insupermarkets. We have also initiated efforts in the dentistry market as well asnew initiatives in wound care, hospitality, and environmental remediation. Weare the beneficiaries of a singular core platform technology that allows us toexpand into many industries and geographies. This portfolio of businessesprovides us with both opportunities for growth as well as leverage againstcyclical realities of markets. Our successes would not be possible without the dedication and skills of ournearly 100 PuriCore team members. We are building a team with top calibretalent across all our functional areas in both of our core geographic markets,the UK and US. We are establishing a culture which is based on a Core Purposeof "generating life science solutions for a safer, healthier world" and CoreValues which will guide our activities well into the future. You can find theseon our website at www.puricore.com. Operating Review PuriCore has had an exciting and challenging start to the first half of 2006.Exceptionally strong growth in the US Food Safety business was tempered bychallenges in the UK Endoscopy segment which was impacted by NHS budgetaryconstraints in the first half. We also continue to seek new distributionpartners for our dental business. Activities in all existing businesses, aswell as research and development into new business segments, continue tovalidate the Company's core technology. US Food Safety We are very pleased with the continued growth of our Food Safety business in theUS and are delighted to announce today the signing of the second largest salesagreement in the Company's history. This agreement calls for the installation ofjust over 200 Sterilox Systems in the third and fourth quarters of 2006 in oneof the largest retail supermarket chains in the US. These Systems will berented over three years and generate cumulative revenue and cash flow totallingapproximately $3.3 million. The installation of these Systems is expected to becompleted by the end of the year. This contract is another importantdemonstration of the value that PuriCore's technology brings to its customersand is indicative of the potential growth opportunity for the Company in thissegment. The Company also continues to receive positive feedback from theongoing System trials in several major US supermarkets. During the first half of 2006 the Company installed 679 Sterilox Systems, 658 ofwhich were installed under rental agreements. This compares to 22 installationsin the first half of 2005, all of which were capital sales. The installation ofour 1,000th Sterilox Food Safety System in June of this year represented asignificant milestone for us and demonstrates the value that we continue todeliver to our customers. As of 30 June 2006, the Company had an installed baseof 1,058 Systems in this segment, 935 of which were installed under rentalagreements. As of 31 July 2006, the installed base of Sterilox Systems in ourFood Safety business had risen to 1,141. The Company continues to pursue a model of rental agreement sales in order toexpand its portfolio of recurring revenue streams. Although increased rentalagreements in preference to capital sales directly impacts revenues and netincome in the short term due to the timing of cash received and fixedexpenditures required for System installation, maintenance and support, theserental agreements provide a strong base of recurring revenue while buildingpredictability and sustainability of cash flow. Additionally, rental agreementsare often preferred from a customer perspective as the financial benefits ofimproved shelf life, product safety, and convenience effectively self-fund therental expense. The Company continues to use debt finance both to fund theupfront capital investments required by the rental model and to reduce itsweighted average cost of capital. The Sterilox System produces a food safe sanitiser from only water and commonsalt which, when converted through patented technology, provides retailers asolution to potential cross contamination of harmful bacteria or spoilageorganisms in the produce, seafood and floral departments. The equipment is fullyautomated and uses very little floor space, which is ideal for supermarketbackrooms. The sanitiser is non-toxic, food safe, FDA allowed and EPAregistered. UK and International Endoscopy PuriCore's principal customer in the UK is the NHS hospital network. The UKGovernment's directive earlier this year that it will not continue to offset theover-budget expenditures of the NHS resulted in a delay in orders for ourSystems. The impact of this lower unit volume has also resulted in a loweroperating margin in this business compared to the first half of 2005 given thefixed costs in place to support installations and maintenance. However, we are confident about the opportunities for our UK Endoscopy businessbased on a robust pipeline of prospective NHS Trust customers. As a result of our flotation we are now in the position to offer our NHS andprivate hospital customers a number of new financing options. We are in theprocess of introducing these alternatives, including rental models which provideour customers with more purchasing flexibility. Historically, our UK businessmodel was to place Sterilox Systems with customers on multi-year operatingleases and to place Automatic Endoscope Reprocessors (AER's) on capital sales.The majority of these operating leases were vendor financed enabling the Companyto receive cash and therefore recognise the revenue upon sale. We expect theseadditional financing options to have a positive impact on System installationstowards the end of 2006 and thereafter. As expected, there will be a short-termimpact on revenues and margins as we transition the UK business portfolio tomore of a rental model which recognises revenue over a rental period and buildspredictability and sustainability of cash flow. Internationally, the Company continues to develop the market in the EuropeanUnion and abroad. In particular, Sterilox Endoscopy Systems and AER's have beeninstalled (sold on a distributor basis) in Ireland and India during the firsthalf of the year. Global Dental Our Global Dental business entered a transitional phase during the first half of2006. While the efficacy of Sterilox Solutions for use in dental unit waterline decontamination is proven, our challenge has been to gain traction for thisindication in the dental office as the overall market adoption of suchtechnologies has been limited. Our strategy therefore is to increase the focuson clinically oriented applications such as root canal procedures and oralrinses. To that end, since the IPO, the Company received US FDA 510(k) approval allowingit to market Aquatine(TM)EC (Endodontic Cleanser) as a medical device indicatedfor use in irrigating, cleansing, and debriding root canals. It is producedfrom our current Sterilox System and is an efficacious, safe and non-toxicalternative to sodium hypochlorite and other competitive cleanser offerings.With this new indication enabling the product to be marketed for clinical uses,the Company is now in the process of seeking new distribution partners for theGlobal Dental business. New Business Opportunities In addition to the research and development activities to match our technologyto unmet needs in the retail grocery, endoscopy and dental industries, PuriCoreis pursuing new market opportunities in the wound care, hospitality andenvironmental remediation markets. We are also constantly working on adaptingexisting products to new geographical markets worldwide. Our Wound Care System, VasheTM, received US FDA 510(k) regulatory approval, asannounced on 7 July 2006 and we are currently investigating potential marketsand partners for this technology. Our goal in US Endoscopy continues to be acommercial launch in late 2007. In the Environmental Remediation area, we recently concluded independentlaboratory studies to EPA test standards showing that the Sterilox hypochlorousacid solution is effective as a hard surface virucidal disinfectant against anAvian Flu surrogate (Hong Kong Influenza strain type A) after two minutescontact time. Additional peer reviewed studies demonstrating the biocidalactivity of PuriCore hypochlorous acid solutions against key environmentalmicrobial pathogens such as Norovirus, Acinetobacter and MRSA are anticipated inthe coming months. Board of Directors We are pleased to announce today the addition of three new independentNon-Executive Directors to our Board effective today, 13 September 2006. Wewelcome to PuriCore Timothy Anderson and Dr. Alan Suggett, former seniorexecutives from Baxter and Smith & Nephew respectively, and Dr. Jim Walsh, ChiefOperating Officer of Trinity Biotech (see separate press release today for fullbiographies and backgrounds). These new members bring valuable expertise andcontacts in the life science and medical technology industries. Outlook The strengthening of our balance sheet through the Company's successfulflotation earlier this year leaves us well positioned to execute our businessplan. We have a number of major opportunities ahead not only in our principalbusinesses today, namely the Food Safety and Endoscopy businesses, but equallythe many other markets we can address with our proprietary platform technology.We are focused on the continued expansion of our rental business which adds toour base of recurring revenue and allows us to plan targeted investment in thefuture. With new applications in our Dental business as well as the potentialto expand into the Wound Care, Environmental Remediation, and Hospitalitymarkets, PuriCore is well positioned to deliver exciting long term growth andattractive investment returns to our shareholders. Christopher P.J. Wightman Greg BoschChairman Chief Executive Officer Financial Review PuriCore plc has prepared its unaudited interim financial statements inaccordance with International Financial Reporting Standards (IFRS) as at 30 June2006. The comparative numbers for the six months ended 30 June 2005 have beenrestated under IFRS. Revenues Revenues for the Company for the six months ended 30 June 2006 were $8.4million, an increase of $0.3 million, or 4%, over the first half of 2005. 2006results were negatively impacted by $323,000 vs. 2005 due to fluctuation offoreign currency exchange (F/X) rates. Excluding the impact of currency,revenues increased 8% over the first half of 2005. Revenues in the Food Safety business for the interim period were $2.4 millioncompared to $0.2 million for the same period in 2005, an increase of $2.2million, or 968%. There is no F/X impact on this business line, as 100% of therevenue is denominated in our reporting currency, the US dollar. As discussedin the Chairman and CEO's statement, the Company continues its strategy ofgrowing the base of Sterilox Systems installed on rental agreements to provide astrong base of recurring revenue while also building predictability andsustainability of cash flow. Of the $2.4 million in H1 2006 revenue in the FoodSafety business, $1.7 million was related to Systems placed under three yearrental agreements. The 658 Systems placed in the first half of 2006 under rentalagreements represent approximately $10.9 million in revenue over their threeyear contract lives. UK and International Endoscopy revenues for the interim period were $5.6 millioncompared to $7.1 million for the same period in 2005, a decrease of $1.5million, or 21%. Excluding the negative impact from F/X noted above,comparative revenues decreased $1.2 million, a 17% decrease. Dental revenue for the period was $0.3 million vs. $0.7 million for the sameperiod 2005, a decrease of $0.4 million, or 56%. There is no material F/Ximpact on this business line as substantially all of the revenue is denominatedin our reporting currency, the US dollar. Gross Margins Overall gross profit for the Company for the six months ended 30 June 2006 was$2.4 million, or 28.4% of revenue. This compares to $3.7 million, or 45.8% ofrevenue, for the same period 2005. The decrease in margin percentage compared to 2005 is the result of: • lower gross margins in the Food Safety business, which were anticipated and planned as part of the Company's rental model. These margins are reflective of a US-based service organisation that achieved and supported 679 System installations during the first half of 2006 (658 of which were under three year rental agreements). As the recurring revenue from these rental installations grows, the fixed service component will be leveraged and margins are therefore expected to increase. We anticipate this growth in margins to begin in the second half of the year and continue throughout 2007; • revenue in the UK and International Endoscopy business, which decreased from the comparative period in 2005. The Company has certain internal fixed costs that are charged to cost of sales, primarily related to our field service organisation (responsible for System installations). Lower revenues, combined with planned fixed costs, have contributed to lower gross margins. As unit volumes sales increase, we expect gross margins to increase as well; and • repairs and maintenance expenses for Systems installed under rental contracts, which are expensed when incurred. While we are satisfied with the performance and reliability of Systems to date, expenses were somewhat higher in the period directly after installation. Operating Expenses Operating Expenses (consisting of Selling, General and Administrative expensesand Research and Development expenses) for the six months ending 30 June 2006were $9.9 million compared to $7.9 million for the same period in 2005. Thisrepresents an increase of $2.0 million, or 25%. This includes $0.9 million and$0.6 million for non-cash stock compensation charges in 2006 and 2005,respectively, in accordance with IAS 2. Also within the 2006 non-cash stockcompensation charge is a $0.6 million charge for the repricing of certainoptions. Excluding this non-cash charge, Operating Expenses increased $1.7million, or 23%, over the same period in 2005. The increase in operating expenses is a direct result of our investment in ourexisting business lines as well as targeted investment in growth opportunitiesconsisting of both new markets for our technology as well as geographicexpansion for existing products. Net Loss Net loss for the first six months of 2006 was $7.7 million compared to $4.6million for the same period 2005. The loss was driven by the revenue and grossmargin factors discussed above as well as the targeted investment in OperatingExpenses to drive the growth of the business. Other Financial Highlights The Company was successful in raising $54.5 million in its flotation on theLondon Stock Exchange in June 2006. We will continue our strategy of targetedinvestment in new business opportunities and geographic markets. Cash and IPOrelated receivables, net of IPO costs to be paid, totalled $48.7 million as at30 June 2006. In April 2006, the Company financed the continued installation of its SteriloxFood Safety Systems under rental contracts through a new $7.5 million line ofcredit with a US commercial bank. The Company will continue to use selectivelysecured lending to further the strategy of growing our base of rented SteriloxSystems installed on operating lease agreements. This strategic leverageenables us to manufacture and install our Systems while minimising the up-frontnegative cash impact that results due to the nature of rental contracts (revenueand cash recognised over time vs. at time of sale). Keith A. GoldanChief Financial Officer CONSOLIDATED INCOME STATEMENT For the six month periods ended 30 June 2006, 30 June 2005 and the year ended 31December 2005 Note 30 June 30 June 31 December 2006 2005 2005 $ $ $CONTINUING OPERATIONS REVENUE 1 8,362,939 8,059,638 12,835,954Cost of sales (5,987,022) (4,368,528) (8,961,594) ______ ______ ______GROSS PROFIT 1 2,375,917 3,691,110 3,874,360Selling, general and administrative expenses (8,709,298) (7,546,818) (14,035,941)Research and development (1,225,270) (397,941) (1,646,277) ______ ______ ______EARNINGS BEFORE INTEREST AND TAX (7,558,651) (4,253,649) (11,807,858)Finance costs (242,880) (432,988) (1,227,546)Finance income 63,835 54,284 119,489 ______ ______ ______LOSS BEFORE TAX (7,737,696) (4,632,353) (12,915,915)Income tax expense - - - ______ ______ ______LOSS FOR THE PERIOD (7,737,696) (4,632,353) (12,915,915) ______ ______ ______ ATTRIBUTABLE TO:EQUITY HOLDERS OF THE PARENT (7,737,696) (4,632,353) (12,915,915) ______ ______ ______ EARNINGS PER SHARE $/share $/share $/shareContinuing operations Basic (0.07) (0.05) (0.14) ______ ______ ______Diluted (0.07) (0.05) (0.14) ______ ______ ______ CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the six months period ended 30 June 2006, 30 June 2005 and the year ended 31December 2005 30 June 30 June 31 December 2006 2005 2005 $ $ $ Exchange differences on translation of foreign operations (223,085) (252,336) (130,152) ______ ______ ______NET LOSS RECOGNISED IN EQUITY (223,085) (252,336) (130,152)Loss for the period (7,737,696) (4,632,353) (12,915,915) ______ ______ ______TOTAL RECOGNISED INCOME AND EXPENSE (7,960,781) (4,884,689) (13,046,067) ______ ______ ______ TOTAL RECOGNISED INCOME AND EXPENSE IS ATTRIBUTABLE TO:Equity holders of the parent (7,960,781) (4,884,689) (13,046,067) ______ ______ ______ CONSOLIDATED BALANCE SHEET As at 30 June 2006, 30 June 2005 and 31 December 2005 30 June 30 June 31 December 2006 2005 2005 $ $ $ASSETSNON CURRENT ASSETSIntangible assets 4,654,086 4,499,803 4,534,245Property, plant and equipment (excluding equipment leased to 1,598,394 1,625,569 1,671,209customers)Equipment leased to customers 5,647,116 140,617 1,978,203Other loans receivable 254,671 - 783,073Other receivables 1,810,098 15,776 202,270 ______ ______ ______TOTAL NON CURRENT ASSETS 13,964,365 6,281,765 9,169,000 ______ ______ ______CURRENT ASSETSInventories 2,965,310 2,890,639 3,731,050Trade and other receivables 3,153,578 4,508,380 2,882,226IPO funds receivable 6,863,979 - -Other loans receivable 794,690 - 1,775,226Cash and cash equivalents 46,977,061 5,236,447 952,842 ______ ______ ______TOTAL CURRENT ASSETS 60,754,618 12,635,466 9,341,344 ______ ______ ______TOTAL ASSETS 74,718,983 18,917,231 18,510,344 ______ ______ ______LIABILITIESCURRENT LIABILITIESTrade and other payables (6,401,070) (5,707,070) (6,675,808)IPO expenses payable (5,162,462) - -Financial liabilities (6,103,953) (255,724) (2,362,641) ______ ______ ______TOTAL CURRENT LIABILITIES (17,667,485) (5,962,794) (9,038,449) ______ ______ ______NON CURRENT LIABILITIESFinancial liabilities (4,622,311) (16,022) (2,881,046)Provisions (20,884) (20,446) (25,752) ______ ______ ______TOTAL NON CURRENT LIABILITIES (4,643,195) (36,468) (2,906,798) ______ ______ ______TOTAL LIABILITIES (22,310,680) (5,999,262) (11,945,247) ______ ______ ______NET ASSETS 52,408,303 12,917,969 6,565,097 ______ ______ ______EQUITYShare capital 1,518,390 97,950 99,494Share premium 144,267,162 91,840,429 93,283,890Other reserves 3,764,484 2,445,334 2,808,835Retained earnings (97,388,989) (81,367,731) (89,651,293)Cumulative translation adjustment 247,256 (98,013) 24,171 ______ ______ ______ISSUED CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS 52,408,303 12,917,969 6,565,097 ______ ______ ______TOTAL EQUITY 52,408,303 12,917,969 6,565,097 ______ ______ ______ CONSOLIDATED CASH FLOW STATEMENT As of the six month period ended 30 June 2006, 30 June 2005 and the year ended31 December 2005 30 June 30 June 31 December 2006 2005 2005 $ $ $ CASH FLOWS FROM OPERATING ACTIVITIESLoss for the period (7,737,696) (4,632,353) (12,915,915)Adjustments for:Finance costs 242,880 432,988 1,227,546Finance income (63,835) (54,284) (119,489)Depreciation and amortisation 1,398,139 350,026 1,328,421Amortisation of warrant and debt discount and issuance costs - - 52,634Share based payment expense 940,024 629,313 1,333,380Gain on disposal of property, plant and equipment 45,999 109,488 942,753 ______ ______ ______OPERATING LOSS BEFORE MOVEMENT IN WORKING CAPITAL (5,174,489) (3,164,822) (8,150,670)Decrease/(increase) in inventories 765,740 469,042 (102,411)Increase in trade and other receivables (8,881,594) (2,244,721) (983,625)(Increase)/decrease in trade and other payables 4,924,855 (3,387,685) (4,963,720)Decrease in provisions (4,868) (131,226) (142,618) ______ ______ ______CASH GENERATED BY OPERATIONS (8,370,356) (8,459,412) (14,343,044) ______ ______ ______NET CASH FLOW FROM OPERATING ACTIVITIES (8,370,356) (8,459,412) (14,343,044) ______ ______ ______CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment (4,640,391) (283,795) (2,932,040)Proceeds from sale of property, plant and equipment - - 335,987Purchase of intangible assets - - (1,651)Cash paid for internally generated intangibles (343,719) (587,612) (905,506) ______ ______ ______NET CASH FLOW FROM INVESTING ACTIVITIES (4,984,110) (871,407) (3,503,210) ______ ______ ______CASH FLOWS FROM FINANCING ACTIVITIESIssue of shares, options and warrants 52,402,168 27,569,218 29,019,407Proceeds from new loans 9,147,555 2,300,000 5,896,050Repayments of borrowings (884,424) (15,536,553) (15,847,161)Repayments of obligations under finance leases (19,985) (4,241) (30,356)Interest received - - 119,489 ______ ______ ______NET CASH FLOW FROM FINANCING ACTIVITIES 60,645,314 14,328,424 19,157,429 ______ ______ ______NET INCREASE IN CASH AND CASH EQUIVALENTS 47,290,848 4,997,605 1,311,175Cash and cash equivalents at beginning of period 952,842 - -Effect of foreign exchange rate changes on cash held (217,268) 238,842 (358,333) ______ ______ ______CASH AND CASH EQUIVALENTS AT END OF PERIOD 48,026,422 5,236,447 952,842 ______ ______ ______ BASIS OF PREPARATION The consolidated interim financial statements of the company for the six monthsended 30 June 2005 comprise the company and its subsidiaries (together referredto as the 'Group'). The consolidated interim financial statements were authorised for issuance on 13September 2006. The comparative figures for the year ended 31 December 2005 are not thecompany's statutory accounts for that financial year. Those accounts, whichwere prepared under International Financial Reporting Standards as adopted bythe EU ("Adopted IFRSs"), have been reported on by the Reporting Accountant(KPMG LLP). The report of the Reporting Accountants was (i) unqualified, (ii)did not include a reference to any matters to which the Reporting Accountantsdrew attention by way of emphasis without qualifying their report and (iii) didnot contain a statement under section 237(2) or (3) of the Companies Act 1985. These interim financial statements are presented as a continuation of thefinancial statements of PuriCore, Inc. (formerly Sterilox Technologies, Inc.)which adopted IFRS for the first time in the non-statutory financial statementspresented in the Prospectus published 27 June 2006. The financial statementspublished in the Prospectus include a reconciliation of equity at 1 January2004, the date of transition of PuriCore, Inc. The reconciliations of equity and profit included in Note 5 to these interimfinancial statements explaining the transition from US GAAP to Adopted IFRSs arepresented to assist the users of these interim financial statements in theirunderstanding of the impact of the application of Adopted IFRSs. The accounting policies have been applied consistently throughout the Group forpurposes of these consolidated interim financial statements. ADOPTED IFRS NOT YET APPLIED The following adopted IFRSs were available but have not been applied by thePuricor Group in these financial statements: • IAS 1 (Amendment): 'Presentation of financial statements' - effective for annual periods beginning on or after 1 January 2007. • IAS 21 (Amendment): 'The effects of changes in foreign exchange rates' - effective for annual periods beginning on or after 1 January 2006. • IFRIC 4: 'Determining whether an arrangement contains a lease' - effective for annual periods beginning on or after 1 January 2006. • IFRIC 5: 'Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds incorporating an amendment to IAS 39 Financial Instruments: recognition and Measurement' - effective for annual periods beginning on or after 1 January 2006. • IFRIC 6: 'Liabilities arising from participating in a specific market - waste electrical and electronic equipment' - effective for annual periods beginning on or after 1 December 2005. • IFRIC 8: 'Scope of IFRS 2' - effective for annual periods beginning on or after 1 May 2006. • IFRIC 9: 'Reassessment of embedded derivatives' - effective for annual periods beginning on or after 1 June 2006. The Group does not anticipate that the adoption of these standards andinterpretations will have a material effect on its financial statements oninitial adoption. NOTES TO THE FINANCIAL STATEMENTS For the six month period ended 30 June 2006 1 SEGMENTAL ANALYSIS The PuriCore Group is managed by type of business. Segmental information isprovided having regard to the nature of the goods and services provided and themarkets served. Primary reporting format - Business Segments For the period ended 30 June Endoscopy Food Dental Corporate & Total as2006 Safety unallocated reported for the PuriCore Group $ $ $ $ $ REVENUE 5,641,029 2,411,799 310,131 - 8,362,939 ______ ______ ______ ______ ______ GROSS PROFIT/(LOSS) 2,342,602 (52,797) 121,115 (35,003) 2,375,917 ______ ______ ______ ______ ______ For the period ended 30 June Endoscopy Food Dental Corporate Total as2005 Safety & unallocated reported for the PuriCore Group $ $ $ $ $ REVENUE 7,129,422 225,816 704,400 - 8,059,638 ______ ______ ______ ______ ______ GROSS PROFIT/(LOSS) 3,483,195 13,948 295,251 (101,285) 3,691,110 ______ ______ ______ ______ ______ For the year ended 31 December Endoscopy Food Dental Corporate Total as2005 reported for Safety & unallocated the PuriCore Group $ $ $ $ $ REVENUE 10,994,419 832,032 1,009,503 - 12,835,954 ______ ______ ______ ______ ______GROSS PROFIT/(LOSS) 4,205,135 (749,733) 378,500 40,458 3,874,360 ______ ______ ______ ______ ______ 2 EMPLOYEE BENEFITS SHARE BASED PAYMENTS During the periods ended 30 June 2005 and 2006 and the year ended 31 December2005 Sterilox Technologies, Inc. operated an Employee Share Option Scheme. Theshare options granted under the scheme are not subject to performance conditionsand have an exercise period of up to 7 years. There are no vesting conditionsattached to the options other than completion of service, with options becomingvested at various points in time following the completion of one year'semployment with Sterilox Technologies, Inc.. 30 June 2006 30 June 2005 Weighted average Number of options Weighted average Number of options exercise price exercise price $ $ $ $ Outstanding at beginning of year 1.63 17,031,617 2.32 7,531,617Granted during the year 1.01 6,993,600 0.78 7,030,000Exercised during the year 0.52 370,000 - -Forfeited during the year 2.85 (4,989,267) 1.66 28,333 ______ ______ ______ ______Outstanding at end of year 1.12 19,405,950 1.82 14,589,950 ______ ______ ______ ______ Exercisable at end of year 1.23 10,393,958 1.64 7,465,199 ______ ______ ______ ______ (continued from table above) 31 December 2005 Weighted average Number of options exercise price $ $ Outstanding at beginning of year 2.32 7,531,617Granted during the year 0.80 9,720,000Exercised during the year - -Forfeited during the year (1.66) (220,000) ______ ______Outstanding at end of year 1.63 17,031,617 ______ ______ Exercisable at end of year 1.70 8,062,391 ______ ______ The weighted average share price for the period was $0.92 (June 2005: $0.825,December 2005: $0.825). The weighted average share price has been based onvaluations undertaken in the year and is not based on market observableinformation. On 22 February 2006, the company repriced 4,233,600 stock options to $1.00 heldby employees and non-employee directors from original exercise prices of $2.425and $3.25 per share. As a condition of the reduction of the exercise price,option holders agreed that the vesting of the options would not accelerate inthe event of a public offering of the company. As a result of the repricing,under IFRS 2, the company has recognised incremental compensation expenserelated to the increase in fair value due to the modification of $638,665 in thesix months to 30 June 2006. 3 ACQUISITION On 27 June 2006, PuriCore plc acquired the entire share capital of PuriCore,Inc. (formerly Sterilox Technologies, Inc.) from its shareholders inconsideration for the issue by PuriCore plc of ordinary shares credited as fullypaid (pursuant to a Merger Agreement dated 16 May 2006). On 28 June 2006, PuriCore plc announced its placing on the London StockExchange. The placing provided the Group with net proceeds of approximately$49.6m (after the deduction of commissions, fees and other expenses payable). 4 EXPLANATION OF TRANSITION TO IFRS As stated in the accounting policies, these financial statements are presentedas a continuation of the financial statements of PuriCore, Inc. which adoptedIFRS for the first time in the non-statutory financial statements presented inthe Prospectus published 27 June 2006. The financial statements published inthe prospectus include a reconciliation of equity at 1 January 2004, the date oftransition of PuriCore, Inc. In preparing the interim financial statements, the company has adjusted amountsreported previously in financial statements prepared in accordance with its oldbasis of accounting (US GAAP). An explanation of how the transition from USGAAP to Adopted IFRSs has affected the PuriCore Group's financial position,financial performance and cash flows is set out in the following tables and thenotes that accompany the tables. RECONCILIATION OF EQUITY 1 January 2005 Note Previously Effect of Adopted IFRS's reported transition to under IFRS US GAAPASSETS and presented in IFRS formatNON CURRENT ASSETS $ $ $Intangible assets c 3,542,678 596,357 4,139,035Property, plant and equipment (excludingequipment leased to customers) 1,698,345 - 1,698,345Equipment leased to customers 259,991 - 259,991Other receivables 521,008 - 521,008 ______ ______ ______TOTAL NON CURRENT ASSETS 6,022,022 596,357 6,618,379 ______ ______ ______CURRENT ASSETSInventories 3,359,681 - 3,359,681Trade and other receivables 1,758,427 - 1,758,427Other loans receivable 2,300,000 - 2,300,000Cash and cash equivalents - - - ______ ______ ______TOTAL CURRENT ASSETS 7,418,108 - 7,418,108 ______ ______ ______TOTAL ASSETS 13,440,130 596,357 14,036,487 ______ ______ ______LIABILITIESCURRENT LIABILITIESTrade and other payables (8,440,945) - (8,440,945)Financial liabilities (2,750,838) - (2,750,838) ______ ______ ______TOTAL CURRENT LIABILITIES (11,191,783) - (11,191,783) ______ ______ ______NON CURRENT LIABILITIESFinancial liabilities d (13,552,845) 491,143 (13,061,702)Provisions (151,672) - (151,672) ______ ______ ______TOTAL NON CURRENT LIABILITIES (13,704,517) 491,143 (13,213,374) ______ ______ ______TOTAL LIABILITIES (24,896,300) 491,143 (24,405,157) ______ ______ ______NET (LIABILITIES)/ASSETS (11,456,170) 1,087,500 (10,368,670) ______ ______ ______EQUITYShare capital 46,424 - 46,424Share premium d,e 65,271,244 (948,507) 64,322,737Other reserves d,e - 1,843,224 1,843,224Deferred compensation e (154,624) 154,624 -Retained earnings (76,917,518) 182,140 (76,735,378)Cumulative translation adjustment f 298,304 (143,981) 154,323 ______ ______ ______ISSUED CAPITAL AND RESERVES ATTRIBUTABLE TOEQUITY HOLDERS (11,456,170) 1,087,500 (10,368,670) ______ ______ ______TOTAL EQUITY (11,456,170) 1,087,500 (10,368,670) ______ ______ ______ (continued from table above) 30 June 2005 Note Previously Effect of Adopted IFRS's reported transition to under IFRS US GAAP andASSETS presented in IFRS formatNON CURRENT ASSETS $ $ $Intangible assets c 3,387,542 1,112,261 4,499,803Property, plant and equipment (excludingequipment leased to customers) 1,625,569 - 1,625,569Equipment leased to customers 140,617 - 140,617Other receivables 15,776 - 15,776 ______ ______ ______TOTAL NON CURRENT ASSETS 5,169,504 1,112,261 6,281,765 ______ ______ ______CURRENT ASSETSInventories 2,890,639 - 2,890,639Trade and other receivables 4,508,380 - 4,508,380Other loans receivable - - -Cash and cash equivalents 5,236,447 - 5,236,447 ______ ______ ______TOTAL CURRENT ASSETS 12,635,466 - 12,635,466 ______ ______ ______TOTAL ASSETS 17,804,970 1,112,261 18,917,231 ______ ______ ______LIABILITIESCURRENT LIABILITIESTrade and other payables (5,707,070) - (5,707,070)Financial liabilities (255,724) - (255,724) ______ ______ ______TOTAL CURRENT LIABILITIES (5,962,794) - (5,962,794) ______ ______ ______NON CURRENT LIABILITIESFinancial liabilities d (16,022) - (16,022)Provisions (20,446) - (20,446) ______ ______ ______TOTAL NON CURRENT LIABILITIES (36,468) - (36,468) ______ ______ ______TOTAL LIABILITIES (5,999,262) - (5,999,262) ______ ______ ______NET (LIABILITIES)/ASSETS 11,805,708 1,112,261 12,917,969 ______ ______ ______EQUITYShare capital 97,950 - 97,950Share premium d,e 92,788,936 (948,507) 91,840,429Other reserves d,e - 2,445,334 2,445,334Deferred compensation e (88,928) 88,928 -Retained earnings (81,051,712) (316,019) (81,367,731)Cumulative translation adjustment f 59,462 (157,475) (98,013) ______ ______ ______ISSUED CAPITAL AND RESERVES ATTRIBUTABLE TOEQUITY HOLDERS 11,805,708 1,112,261 12,917,969 ______ ______ ______TOTAL EQUITY 11,805,708 1,112,261 12,917,969 ______ ______ ______ RECONCILIATION OF EQUITY (continued) 31 December 2005 Note Previously Effect of Adopted IFRS's reported transition under to US GAAP IFRS and presented in IFRS format $ $ $ASSETSNON CURRENT ASSETSIntangible assets c 3,152,443 1,381,802 4,534,245Property, plant and equipment (excluding equipment 1,671,209 - 1,671,209leased to customers)Equipment leased to customers 1,978,203 - 1,978,203Other loans receivable 783,073 - 783,073Other receivables 202,270 - 202,270 ______ ______ ______TOTAL NON CURRENT ASSETS 7,787,198 1,381,802 9,169,000 ______ ______ ______CURRENT ASSETSInventories 3,731,050 - 3,731,050Trade and other receivables 2,882,226 - 2,882,226Other loans receivable 1,775,226 - 1,775,226Cash and cash equivalents 952,842 - 952,842 ______ ______ ______TOTAL CURRENT ASSETS 9,341,344 - 9,341,344 ______ ______ ______TOTAL ASSETS 17,128,542 1,381,802 18,510,344 ______ ______ ______LIABILITIESCURRENT LIABILITIESTrade and other payables (6,675,808) - (6,675,808)Financial liabilities (2,362,641) - (2,362,641) ______ ______ ______TOTAL CURRENT LIABILITIES (9,038,449) - (9,038,449) ______ ______ ______NON CURRENT LIABILITIESFinancial liabilities d (2,881,046) - (2,881,046)Provisions (25,752) - (25,752) ______ ______ ______TOTAL NON CURRENT LIABILITIES (2,906,798) - (2,906,798) ______ ______ ______TOTAL LIABILITIES (11,945,247) - (11,945,247) ______ ______ ______NET ASSETS 5,183,295 1,381,802 6,565,097 ______ ______ ______EQUITYShare capital 99,494 - 99,494Share premium d,e 94,232,397 (948,507) 93,283,890Other reserves d,e - 2,808,835 2,808,835Deferred compensation e (31,250) 31,250 -Retained earnings (89,310,681) (340,612) (89,651,293)Cumulative translation adjustment f 193,335 (169,164) 24,171 ______ ______ ______ISSUED CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY 5,183,295 1,381,802 6,565,097HOLDERS ______ ______ ______TOTAL EQUITY 5,183,295 1,381,802 6,565,097 ______ ______ ______ RECONCILIATION OF PROFIT 30 June 2005 Note Previously Effect of Adopted IFRS's reported transition under to IFRS US GAAP and presented in IFRS format $ $ $CONTINUING OPERATIONS REVENUE 8,059,638 - 8,059,638Cost of sales (4,368,528) - (4,368,528) ______ ______ ______GROSS PROFIT 3,691,110 - 3,691,110Selling, general and administrative expenses b,c,e (6,446,269) (1,100,549) (7,546,818)Research and development c (1,000,331) 602,390 (397,941)Profit on disposal of property, plant and equipment - - - ______ ______ ______EARNINGS BEFORE INTEREST AND TAX (3,755,490) (498,159) (4,253,649)Finance costs (432,988) - (432,988)Finance income 54,284 - 54,284 ______ ______ ______LOSS BEFORE TAX (4,134,194) (498,159) (4,632,353)Income tax expense b - - - ______ ______ ______LOSS FOR THE YEAR (4,134,194) (498,159) (4,632,353) ______ ______ ______EARNINGS PER SHAREContinuing operations $/share $/share Basic (0.04) (0.05) ______ ______Diluted (0.04) (0.05) ______ ______ (continued from table above) 31 December 2005 Note Previously Effect of Adopted IFRS's reported transition under to IFRS US GAAP and presented in IFRS format $ $ $CONTINUING OPERATIONS REVENUE 12,835,954 - 12,835,954Cost of sales (8,961,594) - (8,961,594) ______ ______ ______GROSS PROFIT 3,874,360 - 3,874,360Selling, general and administrative expenses b,c,e (12,494,517) (1,541,424) (14,035,941)Research and development c (2,584,986) 938,709 (1,646,277)Profit on disposal of property, plant and equipment - - - ______ ______ ______EARNINGS BEFORE INTEREST AND TAX (11,205,143) (602,715) (11,807,858)Finance costs (1,227,546) - (1,227,546)Finance income 119,489 - 119,489 ______ ______ ______LOSS BEFORE TAX (12,313,200) (602,715) (12,915,915)Income tax expense b (79,963) 79,963 - ______ ______ ______LOSS FOR THE YEAR (12,393,163) (522,752) (12,915,915) ______ ______ ______EARNINGS PER SHAREContinuing operations $/share $/share Basic (0.13) (0.14) ______ ______Diluted (0.13) (0.14) ______ ______ RECONCILIATION OF CASH FLOW With the exception of reclassification, there are no material differencesbetween the cash flow statement presented under IFRSs and the cash flowstatement presented under US GAAP. EXPLANATION OF IFRS ADJUSTMENTS A summary of the significant differences between US GAAP and IFRS and the impactto the PuriCore Group is as follows: a) Presentation of financial results and information. The format of the IFRSfinancial statements has been prepared in accordance with IAS 1 "Presentation offinancial statements", which differs from its US equivalent. In particularthere is greater flexibility on the presentation of information in the primarystatements. Certain headings are mandatory but IFRS allows companies to adoptother headings in accordance with the nature of their business. A reclassification has been made to classify warranty accruals from currentliabilities under US GAAP to provisions in accordance with IAS 37. At 1 January2005 $151,672 has been reclassified, 30 June 2005 $20,446 and at 31 December2005 $25,752. b) Income tax and goodwill impairment charge. On acquisition of SteriloxMedical (Europe) Limited on 30 November 2000, pre-acquisition losses of$1,910,761 were acquired. No deferred tax asset was recognised at the time ofacquisition, as the directors considered realisation uncertain. Subsequentbenefit has been utilised and under US GAAP this benefit is treated as a writedown against goodwill and credit against tax charged in the income statement. Atax charge of $443,371 in 2004 and $79,963 in 2005 have been recorded in theincome statement under US GAAP. Under IFRS an impairment charge againstgoodwill is recorded in the income statement in place of this tax charge. Thishas resulted in a reclassification in the income statement under IFRS from taxexpense to impairment charge with $nil impact on loss for the year in 2005. c) Intangible assets - Research and development costs. Under IFRS, IAS 38states that when the technical and economic feasibility of a project can bedemonstrated and further prescribed conditions are satisfied, the costs of thedevelopment of the project must be capitalised. Any costs relating to researchmust be expensed as they are incurred. Under US GAAP, FAS 2 requires general research and development costs that arenot covered by separate standards to be expensed as they are incurred. Cumulative capitalised expenditure is $596,357 at 1 January 2005, $1,112,261 at30 June 2005 and £1,381,802 at 31 December 2005. Amortisation of $125,081 hasbeen charged in the year ended 31 December 2005 and $72,992 in the six months to30 June 2005. d) Compound financial instruments. Under IAS 32 and IFRS 7, financialinstruments are treated as equity only to the extent that they include nocontractual obligations to deliver cash or other financial assets or to exchangefinancial assets or financial liabilities with another party under conditionsthat are potentially unfavourable. To the extent that this definition is notmet, the proceeds of issue are classified as a financial liability. Financialliabilities that include an option to convert to equity instruments are compoundfinancial instruments under US GAAP and IFRS. Under IFRS the instrument isrequired to be "split" accounted - ie the equity component should be valued andshown as a component of equity. This treatment is not permitted under US GAAP.The equity component of convertible debt instruments have been included in otherreserves. At 1 January 2004 the equity component reclassified was $536,022. In 2004,$44,879 was released. The remaining $491,143 was released in 2005. e) Accounting for stock based compensation. Under IFRS, the PuriCore Groupapplies the fair value method of accounting for its stock based compensationplans. For accounting purposes under US GAAP, the PuriCore Group applies anintrinsic value method under APB 25 "Accounting for stock issued to employees"as permitted by SFAS 123 "Accounting for stock based compensation". Aspermitted under the transition rules for IFRS, the PuriCore Group has appliedthe accounting methodology to awards granted after 7 November 2002. In line with the requirements of SFAS 123 and as amended by SFAS 148 "Accountingfor stock based compensation - transaction and disclosure" the PuriCore Groupprovides pro forma disclosure of the impact of applying these standards whichare based on a fair value method. The PuriCore Group has used a Black Scholesmodel to calculate the fair value of awards granted. Under IFRS, the fair valueof the options granted are expensed over the vesting period. The valuation models used to value all share options have been reviewed andcertain assumptions which are relevant under US GAAP have been amended to ensurecompliance with IFRS. This has resulted in a charge to the income statementunder IFRS of $168,138 in 1 January 2005 opening reserves, $1,027,557 during theperiod ended 30 June 2005, $301,359 during the period ended 30 June 2006 and$1,333,380 during the year ended 31 December 2005 and an equal credit to otherreserves. Under IFRS the cost of stock options granted but not exercised at thebalance sheet date should be disclosed within a separate reserve within equity.Under US GAAP this cost is included within the share premium account. At 31December 2005, a debit of $123,374 has been transferred from deferredcompensation to other reserves. f) Cumulative translation differences. At 1 January 2004 the cumulativetranslation differences have been assumed to be zero. The balance on thereserve at that date ($159,433) has been transferred to retained earnings. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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